UK pension funds hit by share dip

UK pension funds cannot escape global stock market problems

UK pension funds have lost billions of pounds after stock markets tumbled amid credit crunch fears, reports suggest.

According to actuaries Aon Consulting, the UK's 200 biggest final salary pension schemes had a deficit of £26bn at the end of trading on Thursday.

And consultants Lane, Clark & Peacock (LCP) estimate that companies listed on the FTSE 100 stock index in London have a pensions shortfall of about £15bn.

That compares with surpluses of between £9bn and £12bn in July, the firms said.

The recent worldwide slump in share prices was triggered by problems in the US mortgage market.

The worry for many analysts is that stock market declines will resume next week, wiping even more money off the value of pension funds and global stock markets.

Longer term

Markets staged a recovery on Friday after the US Federal Reserve cut its primary discount rate, with the UK's FTSE 100 closing 3.5% up on the day.

The previous day, it had fallen 4.1%, its worst session in more than four years.

Analysts said there was no guarantee that Friday's upward trend would be maintained when trading resumed after the weekend.

Despite the uncertainty, Aon said that investors should not overreact to the decline in pension fund values.

Marcus Hurd, a senior consultant and actuary at Aon, urged investors to take a longer-term view, pointing out that at the start of 2007 the pension funds had a deficit of £40bn, while a year earlier it was more than £80bn.

"People shouldn't get too concerned about one week of falls," he said.

Even so, people who are close to retirement and not on a guaranteed benefit pension could feel the pinch as they do not have time to ride out the market volatility and make back losses, he explained.

Bob Scott, a partner at LCP, said that while the shift from surplus to deficit was significant, it was not "a case of the world ending".

And if anything, the current problems could act as a reminder for pension fund managers and trustees about the dangers that are inherent in investing too heavily in equities, he said.